The GBP EUR exchange soared to a new yearly high last week as UK inflation and employment came in above expectations. The data will put pressure on the Bank of England to hike rates in the December meeting. The week ahead has German IFO business sentiment and a final reading of GDP in the country. The week ahead will likely be dominated by virus headlines as European nations move towards lockdowns.
The GBP to EUR rate was trading around the 1.1870 level heading for the weekend. The high for the week was near 1.1940 and the 2020 high was at 1.2000.
Coronavirus headlines to drive the pound v euro again
The path of the coronavirus is likely to drive the pound sterling versus the euro once again as cases surge in Europe and governments move to lockdowns.
Austria led with the way with a lockdown for the unvaccinated with a potential move to a full lockdown. Germany is also adding restrictions to the unvaccinated and as other nations follow, this will suck money out of the Eurozone recovery.
However, Professor Neil Ferguson, said of the UK: “I think it is unlikely we will get anything close to what we had last year, that catastrophic winter wave.”
He told BBC Radio 4’s Today programme: “We might see slow increases as we did in October, for instance, but not anything as rapid as we saw last year,” he added.
“We don’t fully understand the drivers of what’s causing the increases in places like Germany though where cases numbers have gone up very quickly. It may be waning immunity from the vaccines – they haven’t rolled out boosters as quickly as we have,” Ferguson said.
There are also fears of a European energy crisis in the winter with the CEO of energy trading giant Trafigura saying: “We haven’t got enough gas at the moment quite frankly, we’re not storing for the winter period. So hence there’s a real concern that there’s a potential if we have a cold winter that we could have rolling blackouts in Europe”.
“I think we have got a bit of an issue looming on oil prices on a long-term basis, I think $100 plus on oil … is very possible,” he added.
Bank of England likely to move on rates, Lagarde pushes back on ECB
The pound sterling will continue to be supported against the euro ahead of the Bank of England’s next interest rate meeting in mid-December.
Inflation is running ahead of analysts’ expectations at 4.2% while the latest employment figures were also strong.
“At a time when purchasing power is already being squeezed by higher energy and fuel bills, an undue tightening of financing conditions is not desirable, and would represent an unwarranted headwind for the recovery,” Lagarde said.
“If we were to take any tightening measures now, it could cause far more harm than it would do any good,” she said.
The pound sterling has the 2020 highs of 1.2000 in its sights and on the current trajectory is likely to get there.
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